Tuesday, February 2, 2010

Prithee, Inform Me: Amazon vs. Macmillan

Based on the comments on yesterday's post, it seems we are not in agreement over who "won" the Battle of E-Book Pricing Hill—Amazon or Macmillan. Generally I determine winners and losers by divine fiat, but in this case, I think I'll conduct (you guessed it): a poll.

Have at it!


  1. Wow, I'm surprised at the results. Methinks people do not fully comprehend the situation...

  2. I think Macmillian is in for a rude awakening about readers and eBooks. I have no faith that any publisher, with the possible exception of Harlequin, has even the tiniest clue, about the digital market.

    From what I've seen Amazon doesn't expect other publishers to follow Macmillan, but they will. And if, as Amazon stated in the post to the kindle forum, they think self-publishers will step into the pricing breach, then Amazon doesn't understand self-publishing where the profit comes from the author buying book at a higher than market price and reselling.

    Eventually, this will shake out but there's going to be pain all around until someone remembers that without readers buying books, there's not much of a market.

  3. Macmillan clearly won if by virtue of no other reason than they conducted themselves vastly better in the public view than Amazon did.

    I mean, John Sargent, Macmillan CEO, put out a statement via paid ad in Publisher's Weekly. Amazon, on the other hand, posted some namby-pamby thing in its own forums authored not by Jeff Bezos but by some random unnamed schlub in a place where no person who wasn't already part of the Kindle Forums would see it.

    I call this a clear Macmillan win.

  4. Amazon looks like book nazis again. If people don't want to buy ebooks at 12.99, then the publishers will get it really quick. I'm excited that the agent model has some space to grow now.

  5. Neither are winners, although Amazon has pulled the biggest d*ck move and created the biggest losers: all Macmillan authors whose books (including new-buy PRINT editions) have been delisted. Some still are as of my last check this morning.

    I can do without Amazon, it's just one middleman-supplier among several competent ones. I can't do without authors or the publishing companies that actually produce the product. Disclaimer: I am not an author. I am a (very pissed-off) reader, unamused by Amazon's attack on the people who create what I read.

  6. I voted McMillan, but want to caveat that with believing it is a short term win. If e-books prices are greater than people want to pay, several bad things will happen: less books sold, being the most important. I'm not sure what the public thinks the "value" of an e-book is yet - I guess we'll find out.

  7. Got to agree with Amy about Amazon pulling the d*ck move, but I also feel Macmillan hung their authors out to dry. As Jay Lake says, the authors are Macmillan's public face, not the Macmillan execs. The authors are taking the brunt of the Kindle-ites backlash online.

  8. One of the largest misunderstandings is the cost of what it takes to make an ebook. That cost is hard to determine for two reasons. A publisher doesn't reinvent the wheel every time they have to make an ebook. There is a DTD created, an ingestion process developed, and a deal made with a vendor, usually the same one that does the print text's composition. This means there is a lot of up front cost. The size of an ebook DTD is actually incredibly large, because they have to take in fundamental book elements like indentation and hyphenation, but then account for all the variances that might occur in a publication for that house (header size, special characters, section breaks in chapters, etc).

    This creates a large upfront cost. Afterward, the process is very simple. Either a book is typeset like normal and then the final archive files are ingested into the necessary ebook. Or the ebook is created during the composition (xml first) so that both the ebook and the finished book are available on the same release date (the risk in this is galley changes being made to the print but not the e-text--still, it's the better way to go). This is all accomplished for pennies (less than pennies since composition is really handled for pennies).

    So where's the possible confusion? Well, what is the cost of an ebook? Is it the up-front? A fraction of the up-front cost plus ingestion cost? Just the ingestion cost? Depending on the point a person is trying to make, he takes whichever value best suits his argument and present it as the cost of an ebook.

    Since standardized ebook production has only been occurring for a few years or less, all these up-front costs are still very fresh in the bean counters' minds. Complicating matters is proprietary deliveries for competing ereaders, which have different requirements and can't be standardized together into a single cost. Kindle texts will have different ISBNs than nook texts which will have different ISBNs than blah blah blah. It's all dollars out on the P&L.

  9. The Short Answer

    Amazon won. They are now receiving not only more money per unit than they were before, but they are receiving more money per unit than the offer they made to publishers with their preemptive Agency Model. They also won by not courting favor with the legacy institution (authors, editors, and publishers), but rather with the true deciding force – the consumer.

    Amazon framed the debate as Greedy Publisher versus Consumer-friendly Internet Giant. Macmillan did the exact opposite – they put word out internally through Publishers Lunch and expected consumers to merely overlook or go along.

  10. The Long Answer and Looking Ahead

    Thanks to Macmillan, the Kindle can now be profitable on both ends – the hardware and the software. No matter how low the prices fall on Kindle eBooks, Amazon will now turn a profit off of each one. Publishers cannot say the same. They have legacy institutions in place, as we have all talked about in numerous pricing debates.

    If the other publishers follow Macmillan's lead, and there's no reason to assume they won't, then Amazon will be in even better shape, bringing all of their loss-leaders into the profitable category.

    Unfortunately, publishers will have a hard time making sales at the price points arranged on the iPad and those Macmillan will be selling at on the Kindle. The reason for that is that publishers are pricing to cost based on prior business relationships where the consumer was not readers, but retailers.

    As Jack McKeown of Verso Digital pointed out – the math behind the $12.99 best seller and $14.99 new release price points are an attempt to replicate the $6.75 revenue a publisher would earn off a hardcover sale if the two products are equalized in cost. His math suggests that there are a large percent of customers who are willing to pay those prices, and that the number accustomed to to sub-$10 eBooks is a large minority (27.5%).

    However, McKeown's using his math incorrectly, creating artificial barriers between maximum payment segments in an attempt to divide into a whole of 100%. By McKeown's reasoning, a customer willing to pay a maximum of $14.99 is not considered a customer for a sub-$10 eBook. That's crazy, and we all know it.

    By fixing Verso's numbers, we find that 62.9% ( almost 2 out of 3) customers would purchase a sub-$10 eBook, but only 35.4% (a hair over 1 in 3) would purchase one in the $10 - $12.99 category, and only 21.8% (a little more than 1 in 5) would purchase an eBook priced between $13 and $14.99.

    Here are those numbers graphed out - http://www.flickr.com/photos/soporic/4325564480/sizes/o/

    The iPad won't save publishing either. The current Amazon customers, the people for whom the $9.99 eBook is frequently considered the highest tolerable price, are a segment most favorable towards big publishers. These are the avid readers. They, more so than your typical customer, understand the legacy costs associated with publishing.

    iPad customers, on the other hand, will be casual readers at best. For these individuals, there will be less tolerance towards high prices and more options to procure books. On the whole, iPad readers will purchase fewer books based solely on reader demographic. Add in the other content which can be accessed on the device – the same selection of audio, games, video, and the web which currently strain entertainment dollars in a down economy – and suddenly eBooks are competing not only against each other, but against numerous other mediums for the vaunted attention of the consumer. But Apple isn't worried, they're already selling eBooks for a profit and thus have no real desire to push consumers into becoming readers.

    So, in short order, publishers armed with pricing options, will have to reduce prices to an area where the customer feels there is value. This means that while Macmillan might have achieved the price point they bargained for, they'll have to retreat back into Amazon's pricing territory, if not lower.

    The Agency model means that publishers aren't selling to distributors, they're selling to consumers. And, as noted above, Amazon framed the episodes of this weekend in an “us against them” mentality, including the consumer in the “us” category.

    So, yes, Macmillan scored a few points. They got exactly what they asked for, and they stood up for their legacy institution, and to a lesser extent, for authors. But, in the long run, they've hurt themselves while pushing their opponents into profitability.

  11. The thing that gets me is that I think the Kindle is the weakest of the major offerings (major being Kingdle, Sony ereader, nook, and iPad) but currently with the strongest position in deciding the evolution of ebooks (though Apple was quickly usurping that role before the iPad announcement. I honestly don't know if that course is continuing at flank speed).

    When the 9.99 pricepoint becomes solidified (and I think it will), we'll still be stuck with the kindle.

  12. @Joseph Well, there's that and device lock-in. Every book purchased for a device that is locked with DRM is either money lost for the consumer, or a promise made to the distributor to stay with the platform.

    Requesting interoperability between vendors would be a wise move as publishers shift towards the Agency model. That would actually put bargaining power on their side as the customers would be easily able to switch providers without any loss on their end.

    Going DRM-free or embracing a widely accepted DRM scheme would allow publishers to freeze out Amazon in exactly the same way Amazon froze out Macmillan.

    Not that I think such an action would ever be accepted. Publishers fear pirates more than middlemen. The real problem they face is that by doing that, they might actually push customers towards piracy in order to preserve personal libraries.

    So warns the Man in the Hat - http://xkcd.com/488/

  13. I voted neither, for lack of a choice that said, "unsure." Whoever won that battle, the war is still raging.

  14. I voted neither. Although, Amazon definitely had the biggest loss. Amazon essentially had a temper tantrum. When someone didn't want to play by their rules, they took their toy and went home. That's not how you do business. That's how you lose credibility.

    The following blog link had a very comprehensive discussion on the legal aspect of Amazon's fiasco.


    No matter how much Amazon tries to swing this as consumer advocacy, it couldn't be further from the truth. They aren't upset that readers will have to pay more for e-books (only for initial release, after which they will scale back the price - as in any other industry), they are upset that Apple will have the same options as Amazon now that the iPad is coming out.

    Sony and B&N didn't have the market pressure necessary to really do much damage to Amazon's share of e-books. However, Apple, whether you love them or not, has a huge following. It's all about competition and Amazon doesn't want to share, which is fine. This is a free market society. They don't have to sell MacMillan books, but pulling them with absolutely no notice to anyone, including consumers, is simply childish. Thinking that doing so will then force MacMillan back to signing up to what Amazon's wants from them is a bullying tactic. It may happen a lot in business, but that doesn't mean I have to like it.

    I, personally, have cancelled my two pre-orders from Amazon (both Tor books), closed my Prime membership, sent them a polite letter explaining why, and bought my books through Powells.com.

  15. I think Macmillan won in some ways that might not be immediately obvious. If the ebook price is a reasonable drop below the hardback price but not low enough to be bargain basement level, people who would have paid the $9.99 for the ebook but not $14.99, might be willing to pay the extra couple of dollars to get the discounted hardback instead. And maybe that's the point.

    In addition, once sales of the Kindle e-reader reached saturation point and customers had become accustomed to the $9.99 price for ebooks, Amazon would have come back to publishers and demanded a bigger cut of ebook profits (they're losing money currently on bestsellers by giving publishers more than Amazon is actually selling them for). This is a problem because as people become accustomed to reading ebooks, they'll buy the cheaper ebook rather than the hardback, and undercutting hardback sales would be a bad move for publishers, who need that income to earn back what they've already spent on the book. A smaller cut of the Kindle sales would not provide that.

    Paper books aren't going anywhere anytime soon. Cultures in general don't change that quickly.

    The price of the ebooks under the agency model are expected to be highest for brand-new bestsellers, and adjusting downward over time. I don't see this as an unreasonable model, and if I really wanted a particular new book and couldn't wait for it to drop in price, I'd pay $14.99 for the ebook.

    As to the piracy issue on the higher-priced ebooks, it's going to happen anyway. My publisher puts out ebooks at the very reasonable price of $4.99, and they report that within six hours of releasing a new book, they're finding it posted on pirate sites. Clearly, price isn't an issue here. It's the fact that some people are not willing to pay for a product regardless of the price.

  16. BOTH of these companies lost. Macmillian is only encouraging more book piracy, and Amazon caved to a publisher at a time when more and more authors are looking to split ebook rights from their contracts.

    Why should authors make pennies per download when you can make 70% of the Kindle price? Traditional publishers and not handling the ebook revolution very well.

  17. I don't know who won, but Macmillan's authors lost. At least until Amazon puts their books back on for sale.

  18. I think Apple won. Now they don't have to worry about Amazon undercutting them. I can see other publishers following in Macmillan's footprints and determining price themselves.

  19. Oh, I should clarify I voted 'neither'.

  20. I think the losers (the Macmillan authors) are more clearcut than the winners.

    I don't know if you could say who won, really. Maybe in five years, we'll know.

  21. I voted neither.

    Amazon didn't win because they didn't get their way, obvious.

    Macmillan didn't win because--while those of us who read up on publishing, author, editors, agents, etc realize that it's better for e-books to have a price that shows their value--the general public who isn't aware of that will see this as a big name publisher raising price. They care about the bottom line.

    So Amazon lost, but to the uninformed public, it looks like Amazon should have won.